Question
In: Accounting
On January 1, 2018, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for...
On January 1, 2018, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for $91,700,000 in cash. The fair value of the noncontrolling interest in Starfruit at the date of acquisition was $6,300,000. Starfruit’s book value was $13,000,000 at the date of acquisition. Starfruit’s assets and liabilities were reported on its books at values approximating fair value, except its plant and equipment (10-year life, straight-line) was overvalued by $25,000,000. Starfruit Company had previously unreported intangible assets, with a market value of $40,000,000 and 5-year life, straight-line, which were capitalized following GAAP.
Additional information:
Pomegranate uses the complete equity method to account for its investment in Starfruit on its own books. Goodwill recognized in this acquisition was impaired by a total of $2,000,000 in 2018 and 2019, and by $500,000 in 2020. It is now December 31, 2020, the accounting year-end. Here is Starfruit Company’s trial balance at December 31, 2020:
| Dr (Cr) | |
|---|---|
| Current assets | $28,200,000 |
| Plant & equipment, net | 188,000,000 |
| Intangibles | 2,000,000 |
| Liabilities | (180,000,000) |
| Capital stock | (1,000,000) |
| Retained earnings, January 1 | (29,500,000) |
| Acumulated other comprehensive income, January 1 | (500,000) |
| Dividends | 400,000 |
| Sales revenue | (24,000,000) |
| Cost of goods sold | 10,000,000 |
| Operating expenses | 6,500,000 |
| Other comprehensive income | (100,000) |
| $ 0 |
On the 2020 consolidation working paper, eliminating entry (R) reduces the Investment in Starfruit by
$ 3,600,000
$64,800,000
$68,200,000
$81,000,000
Solutions
ekkarill92 answered 1 year agoRelated Solutions
On January 1, 2018, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for...
On January 1, 2018, Pomegranate Company acquired 90% of the
voting stock of Starfruit Company for $91,700,000 in cash. The fair
value of the noncontrolling interest in Starfruit at the date of
acquisition was $6,300,000. Starfruit’s book value was $13,000,000
at the date of acquisition. Starfruit’s assets and liabilities were
reported on its books at values approximating fair value, except
its plant and equipment (10-year life, straight-line) was
overvalued by $25,000,000. Starfruit Company had previously
unreported intangible assets, with a...
On January 1, 2018, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for...
On January 1, 2018, Pomegranate Company acquired 90% of the
voting stock of Starfruit Company for $91,700,000 in cash. The fair
value of the noncontrolling interest in Starfruit at the date of
acquisition was $6,300,000. Starfruit’s book value was $13,000,000
at the date of acquisition. Starfruit’s assets and liabilities were
reported on its books at values approximating fair value, except
its plant and equipment (10-year life, straight-line) was
overvalued by $25,000,000. Starfruit Company had previously
unreported intangible assets, with a...
On January 1, 2018, Pomegranate Company acquired 90% of the voting stock of Starfruit Company for...
On January 1, 2018, Pomegranate Company acquired 90% of the
voting stock of Starfruit Company for $91,700,000 in cash. The fair
value of the noncontrolling interest in Starfruit at the date of
acquisition was $6,300,000. Starfruit’s book value was $13,000,000
at the date of acquisition. Starfruit’s assets and liabilities were
reported on its books at values approximating fair value, except
its plant and equipment (10-year life, straight-line) was
overvalued by $25,000,000. Starfruit Company had previously
unreported intangible assets, with a...
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